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Economic Integration, Foreign Investment and International Trade: The Effects of Membership of the European Union

Randolph Bruno (), Nauro Campos (), Saul Estrin and Meng Tian ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper investigates the importance of economic integration in simultaneously fostering foreign direct investment (FDI) and international trade. These have rarely been analyzed jointly using contemporary econometric methods. We estimate the effect of European Union (EU) membership on FDI inflows and trade using annual bilateral data from 34 OECD countries over 1985-2013. We find that EU membership increases FDI inflows by on average 28%. We jointly estimate the impact of EU membership on trade and FDI and find that they are substantial, with the one on trade larger than the one on FDI, in the order of double.

Keywords: special economic integration effects; foreign direct investment; international trade; European Union; gravity model (search for similar items in EconPapers)
JEL-codes: F17 F21 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-int
Date: 2017-11
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